Energy Security in an Era of Global Insecurity

How global geopolitical tensions impact the UK’s energy system

Recent tensions in the Middle East reminds us that disruption far from the UK can rapidly translate into energy price hikes and potential disruption in supply. The government has been learning the lessons from Russia’s invasion of Ukraine, which required more than £50bn in emergency public support to protect households and businesses, and is due to publish an Energy Resilience Strategy.  This strategy will include proposals on how government will work with the energy sector and other partners to address risks and challenges, and strengthen the UK’s prevention, preparedness, response and recovery strategy.

In the meantime, on 12 March 2026, RenewableUK produced an industry report which tackles the energy security threat head on. The report (here - New threats and new tools: reinventing energy security for an era of instability) examines how the changing character of conflict, from unsophisticated drone attacks in Poland, to the Russian “shadow fleet” cable severance between Finland and Estonia and the current major global disruption with attacks on Middle East oil and gas installations and the closure of the Strait of Hormuz, is reshaping the threats to the UK’s energy system.  The report finds that the growing decentralisation of the UK’s energy infrastructure, as we transition away from fewer large fossil fuel power stations, means that the energy system was “really physically resilient” even in the event of individual assets being damaged. However, “the big issue was price” comments Tara Singh, chief executive of RenewableUK. This conclusion is reinforced by the Iran conflict, Singh added: “There is obviously a risk that if this is not concluded fast, the cost to consumers and the economy will be an order of magnitude more than is acceptable. The lesson is: we need to generate as much of our homegrown clean power as possible, because it provides us with resilience against global geopolitical shocks, and also good value for consumers.” ^[1]

Rising renewable generation but higher household electricity bills

However, unfortunately, in the short-term consumers do not experience this “good value” even as the proportion of our energy generated from renewables increases. For instance, renewable energy accounted for more than half of the United Kingdom's electricity for the first time in 2024, and wind power alone contributed 22.4% of Great Britain's supply mix in April 2025. Yet the average annual household energy bill under the energy price cap (introduced by Ofgem in 2019) remains significantly higher than the levels seen prior to the energy crises. So why do consumer electricity prices rise even as the proportion of electricity generated from renewables has grown substantially?

Why UK electricity prices are still set by gas

The answer lies squarely in the mechanics of the marginal pricing system. Because the wholesale price in any given settlement period is set by the most expensive generator needed to meet demand, and because gas-fired power plants typically occupy that marginal position, the wholesale price of electricity is effectively determined by the cost of gas. Some research indicates that the United Kingdom's electricity market price is set by gas approximately 90% of the time but the government claims it is more like 65%. Needless to say, it is one of the highest rates across Europe and well above the EU average of just under 40 per cent. As gas prices have risen sharply, the wholesale cost of electricity has risen in lockstep.

How the UK’s electricity market works: merit order and market mechanics

Electricity is an unusual commodity because it cannot, at present, be stored at scale (although this is changing for the future), and supply and demand must be physically balanced at all times. In Great Britain, this balancing function is performed within a single national wholesale market, established in 2005 under the British Electricity Transmission and Trading Arrangements (BETTA), which sets one price for electricity in each half-hour trading period across England, Wales and Scotland.

Within this market, generators are effectively ranked in ascending order of their short-run marginal cost of production; a concept known as the "merit order". Generators with the lowest marginal costs are dispatched first. These tend to be renewable sources such as wind and solar, whose fuel costs are essentially zero, followed by nuclear, biomass, and then gas-fired plants, which have higher variable costs on account of their fuel inputs. The National Energy Systems Operator (NESO) then contracts with sufficient generators to ensure that supply meets expected demand. The price bid by the marginal generator, that is the most expensive plant needed to balance the market, becomes the clearing price, and all dispatched generators are paid this price. Renewable generators, whose marginal cost of production is close to zero, are paid the same clearing price as the marginal gas plant. For some renewable operators, particularly those on the older Renewables Obligation (RO) scheme, this has generated significant windfall revenues, but for most, under the current Contracts for Difference (CfD) scheme, there is a repayment back to NESO of the difference between the cleared price and the strike price under the CfD. Moreover since 2022 and the Ukraine war, the government has imposed a windfall tax on power sold for more than a set price which remains in place until 2028. This goes some way to limit windfall gains that power plants will make with high wholesale prices. Since the high wholesale cost component accounts for more than a third of a typical domestic electricity bill, with the remainder made up of network costs, operating costs, policy costs, VAT and supplier profit margins, a higher proportion of renewable energy has not yet translated into lower bills for consumers.

When will UK electricity prices fall as clean power grows?

So, when will consumers notice the energy price reductions as more low carbon energy is generated? In its Clean Power 2030 Report on reaching clean power by 2030, NESO highlights that the much-reduced role for gas in a clean power system means that gas would be responsible for an increasingly small percentage of the wholesale costs.  

Under the present marginal pricing system, electricity prices should begin to reduce meaningfully once the UK reaches a point where gas is displaced from the marginal position in a substantial majority of settlement periods, perhaps below 40–50%, and ideally closer to 15%. Current projections suggest this could begin to materialise in the late 2020s, with more significant effects by 2030 and beyond, assuming the clean power build-out proceeds broadly as planned. However, the total reduction in consumer bills will depend not only on lower wholesale prices but also on whether rising system costs (grid improvements, balancing charges due to energy intermittency and legacy subsidies) are managed effectively. Unlike many other countries where these system costs are often spread across energy bills and from general taxation, the UK has tended to burden the energy bill payers with these costs. Recently there have been changes with some renewable levies moving off electricity bills on to general taxation, but the current position remains that the UK has one of the highest electricity costs for domestic and commercial consumers compared to other countries, despite the move towards more clean power.  

RenewableUK report: key recommendations for strengthening UK energy security

Whilst increasing the proportion of renewables is part of the solution to combat energy security shocks and price volatility, the RenewableUK report recommends several interventions to protect energy security and make the system more resilient. These include:

• Increase gas storage, even as our use of gas declines, but particularly, increase Long Duration Energy Storage (LDES). LDES includes hydrogen, battery, hydro and other clean technologies which in times of need can quickly generate electricity. Speedy intervention by government is required to encourage more storage with a clear route to market.
• Include energy, and energy spending, as part of the government’s defence strategy with energy to be considered a core part of protecting our society’s security. The UK should work with NATO to ensure that we embed security by design in our infrastructure so we can keep the system resilient and reduce costs. Spending on energy security would not replace core military spending, but recognise that secure power, fuel and infrastructure underpin military readiness, logistics and civil defence.
• Integrate citizens and business into a whole of society approach to energy by encouraging participation in energy flexibility. With the right market frameworks, households and businesses can benefit directly by adopting smart technologies (such as EV charging, heat pumps, batteries and industrial processes) that automatically make use of cheaper power when it is plentiful and reduce overall energy demand from the grid
• The relative robustness of our decentralised renewables industry means that procedures in the event of an emergency need to evolve further. Renewable energy assets should form part of our security framework with stronger data sharing on cyber incidents and coordinated defensive responses.
• Re-evaluate the thresholds for strategic assets to account for new, distributed threats.  Currently, some smaller UK energy generators sit below the threshold for cyber security risk management requirements set by the Ofgem and DESNZ because the system is able to cope with the loss of the asset with relatively little impact. This threshold must be reassessed in light of the changing threat. The government to consider lowering the size thresholds for reporting and security measures.
• Deepen international collaboration to protect critical undersea energy infrastructure in the North Sea.  As we are pursuing energy independence, increasing and maintaining the security of our assets in the North Sea is paramount, and it cannot be delivered without close cooperation with our regional partners.

Conclusion: preparing the UK for future global energy shocks

As a precursor to the Government’s Energy Resilience Strategy due out shortly, the RenewableUK Report provides an excellent analysis of the resilience of our existing energy system with detailed recommendations to make our energy system more secure in an era of globally insecurity.

It is clear that the UK’s transition to more home-grown low carbon power is good not just for the planet but for the UK’s energy security. The evidence from the RenewableUK report is that our more decentralised energy system makes our infrastructure physically resilient. However, shocks to the global energy system, such the closure of the Strait of Homuz, is felt directly on our electricity prices to the detriment of our economic and social well-being. More home grown clean energy should shield us from these shocks in the longer term, but there is clearly more to be done in the short term.  If oil and gas installations continue to be attacked and the Strait of Hormuz is closed for an extended period, it is likely that the government will need to take additional measures to shield households and industry from price hikes but not to the extent of the £50bn plus in blanket emergency public support which was given in 2022. 

^[1] The Times 13 March 2026